Problem 1:
Glacial Company estimates that variable costs will be60% of sales, and fixed costs will total $926,000. The selling price of the product is $5.
Compute the break-even point in (1) units and (2) dollars.
(1) Break-even sales units
(2) Break-even sales $
Compute the margin of safety in (1) dollars and (2) as a ratio, assuming actual sales are $2,930,380.(Round ratio to 0 decimal places, e.g. 20%.)
(1) Margin of safety $
(2) Margin of safety ratio %
Problem 2:
Telly Savalas owns the Bonita Barber Shop. He employs6barbers and pays each a base rate of $1,300per month. One of the barbers serves as the manager and receives an extra $520per month. In addition to the base rate, each barber also receives a commission of $5.90per haircut.
Other costs are as follows.
| Advertising |
|
$260 |
per month |
| Rent |
|
$960 |
per month |
| Barber supplies |
|
$0.40 |
per haircut |
| Utilities |
|
$170 |
per month plus $0.20per haircut |
| Magazines |
|
$20 |
per month |
Telly currently charges $11.70per haircut.
Determine the variable cost per haircut and the total monthly fixed costs.(Round variable costs to 2 decimal places, e.g. 2.25.)
Total variable cost per haircut $
Total fixed $
Compute the break-even point in units and dollars.(Round answers to 0 decimal places, e.g. 1,225.)
Break-even point haircuts
Break-even point $
Determine net income, assuming2,370haircuts are given in a month.
Net income $
Problem 3:
Dousmann Corp.'s sales slumped badly in 2014. For the first time in its history, it operated at a loss. The company's income statement showed the following results from selling618,000units of product: sales $2,472,000; total costs and expenses $2,616,200; and net loss $144,200. Costs and expenses consisted of the amounts shown below.
.
|
|
Total |
|
Variable |
|
Fixed |
| Cost of goods sold |
|
$2,163,000 |
|
$1,483,200 |
|
$679,800 |
| Selling expenses |
|
247,200 |
|
74,160 |
|
173,040 |
| Administrative expenses |
|
206,000 |
|
49,440 |
|
156,560 |
|
|
$2,616,200 |
|
$1,606,800 |
|
$1,009,400 |
Management is considering the following independent alternatives for 2015.
1. Increase unit selling price24% with no change in costs, expenses, and sales volume.
2. Change the compensation of salespersons from fixed annual salaries totaling $154,500to total salaries of $61,800plus a6% commission on sales.
(a) Compute the break-even point in dollars for 2014.(Round final answer to 0 decimal places, e.g. 1,225.)
(b)Compute the contribution margin under each of the alternative courses of action.(Round final answer to 0 decimal places, e.g. 1,225.)
Contribution margin for alternative 1 %
Contribution margin for alternative 2 %
Compute the break-even point in dollars under each of the alternative courses of action.(Round selling price per unit to 2 decimal places, e.g. 5.25 and other calculations to 0 decimal places, e.g. 20% and also final answer to 0 decimal places, e.g. 1,225.)
Break-even point for alternative 1 $
Break-even point for alternative 2 $
Which course of action do you recommend?Alternative 1Alternative 2
Problem 4:
The Green Acres Inn is trying to determine its break-even point. The inn has 50 rooms that it rents at $75a night. Operating costs are as follows.
| Salaries |
|
$8,547 |
per month |
| Utilities |
|
$1,832 |
per month |
| Depreciation |
|
$1,221 |
per month |
| Maintenance |
|
$610 |
per month |
| Maid service |
|
$9 |
per room |
| Other costs |
|
$36 |
per room |
Determine the inn's break-even point in (1) number of rented rooms per month and (2) dollars.
(1) Break-even point rooms
(2) Break-even point $
Problem 5:
Kare Kars provides shuttle service between four hotels near a medical center and an international airport. Kare Kars uses two 10-passenger vans to offer 12 round trips per day. A recent month's activity in the form of a cost-volume-profit income statement is shown below.
| Fare revenues (1,400fares) |
|
|
|
$35,000 |
| Variable costs |
|
|
|
|
| Fuel |
|
$6,300 |
|
|
| Tolls and parking |
|
3,150 |
|
|
| Maintenance |
|
1,050 |
|
10,500 |
| Contribution margin |
|
|
|
24,500 |
| Fixed costs |
|
|
|
|
| Salaries |
|
12,495 |
|
|
| Depreciation |
|
1,176 |
|
|
| Insurance |
|
1,029 |
|
14,700 |
| Net income |
|
|
|
$9,800 |
(a) Calculate the break-even point in (1) dollars and (2) number of fares.
(1) Break-even point $
(2) Break-even point fares
(b) Without calculations, determine the contribution margin at the break-even point.